WALG.L Regulatory News (WALG)

21 July 2016

This announcement contains inside information

WALCOM GROUP LIMITED

("Walcom" or "the Company")

Agreement for the purchase of land for a feed additive manufacturing plant

Walcom is pleased to announce that it has today reached agreement, via its subsidiary Walcom Bio-Chem (Thailand) Co. Ltd ("Walcom Thailand"), for the purchase from a third party vendor of a two-thirds stake in a 15,295m2 freehold site (the "Sakorn Site") in the Sakorn Province in Thailand, located 32km from Bangkok (the "Acquisition"). The total consideration for the site is THB23.9 million (equivalent to £0.52 million), of which the Company's two-thirds stake is THB15.9 million (equivalent to £0.34 million), which will be funded entirely from Walcom Thailand's existing cash resources. Completion of the Acquisition is expected to occur within the next four months. The remainder of the interest in the Sakorn Site has been acquired by Mr Paitoon Buddhinunta-Opas, the general manager of Walcom Thailand.

Background to the Acquisition

The Company has witnessed a steady growth in demand for its products in the Association of Southeast Asian Nations Economic Community ("AEC") over the last few years. Specifically, the Board has witnessed expanding sales into Thailand, Cambodia and Vietnam during the current financial year and is hopeful that this trend will continue. With this in mind, and while the cost of land in Thailand is relatively low, the Board has taken the opportunity to acquire this site to develop a feed additive manufacturing plant (the "Plant") in Thailand, which is a member of the AEC, for supplying the AEC market.

It is proposed that the Plant will be used to manufacture the existing Walcom products and/or animal premix products (depending on the levels of demand experienced) for the AEC market. The Board believes that development of a manufacturing plant in an AEC country could offer beneficial trading terms for Walcom due to the region's trade treaties. In addition, the diversification of manufacturing facilities by Walcom should allow for downside protection of gross margins in the event that Chinese manufacturing costs continue to increase.

It is likely that there may be opportunities in due course to subdivide the Sakorn Site for onward sale as not all of the land may be required for the construction of the Plant.

Plant development

Development of the Plant will be subject to planning consent and will be funded from Walcom Thailand's internal resources and/or bank finance, as appropriate. Mr Buddhinunta-Opas will not be liable for any of the development costs of the Plant. The scale and manufacturing capacity of the Plant will be determined by market conditions in the region over the coming two to three years. It is expected that development of the Plant would take between eight and twelve months from commencement of the work.

Shareholders Agreement

As part of the Acquisition, Walcom Thailand and Mr Buddhinunta-Opas have entered into a shareholder's agreement which sets out the terms of their ongoing involvement in the Sakorn Site (the "Shareholder's Agreement"). The terms of the Shareholder's Agreement stipulate that Mr Buddhinunta-Opas will unconditionally agree to all future decisions made by Walcom Thailand when dealing with the Sakorn Site and, in the event that either party decides to sell its share of the Sakorn Site, the other party will have a right to purchase its interest at the same price and on the same terms and conditions offered by any other potential purchaser.

Related Party Transaction

Mr Buddhinunta-Opas is a related party under the AIM Rules for Companies ("AIM Rules") by virtue of being a director of Walcom Thailand, a subsidiary of the Company. The entry into the acquisition agreement and the Shareholder's Agreement with Mr Buddhinunta-Opas therefore constitute related party transactions as defined in the AIM Rules.

Accordingly, as required by the AIM Rules, the independent directors (being each of the directors of the Company), having consulted with the Company's nominated adviser, Allenby Capital Limited, consider that the terms of the acquisition agreement and the Shareholder's Agreement are fair and reasonable insofar as the Company's shareholders are concerned. In advising the independent directors, Allenby Capital Limited has relied upon their commercial assessment.

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